The Illusion of Wealth Preservation in China The recent bloodbath in Hong Kong’s stock market brings back memories of my journey to learn how to preserve wealth for my son. The lesson to be learnt from Beijing’s latest tax crackdown? No amount of planning can protect a family fortune within the CCP’s reach. My new essay, The Illusion of Wealth Preservation in China: desmondshum.substack.com/p/t…

Li Lu: From Market Reform to Justifying State Planning Li Lu is someone I know personally and a highly respected investor. His recent @Columbia_Biz speech presents China’s industrial achievements as a vindication of state planning—a marked shift from his earlier arguments for market reform. youtu.be/YRhnX_JAbC8?is=9o8b… Given his prominence in the investment community, I think it’s important to examine his arguments and judgements. I revisited his writings and speeches from 2014 to 2025 to see how his analysis had evolved. desmondshum.substack.com/p/l…

讲得不好，敬请大家包涵； 讲得不对，欢迎大家指正。 youtu.be/CYnI4P9efwg?si=7uS1…

China’s Taiwan Chokepoint: A Nightmare for Global Markets Here’s my biggest takeaway from a conference I just attended in New York. More than a takeaway, it’s a scenario that genuinely spooked me. desmondshum.substack.com/p/c…

The World Finally Turns in Favour of Introverts The world goes round and round. When I started my career, the golden ticket was an MBA from a prestigious university. The corporate stars were polished, articulate people who knew how to work a room and build relationships. Engineers? They were generally regarded as competent nerds. Useful, certainly, but hardly glamorous. Then came the internet revolution. Engineers became rock stars. Twenty years later, AI is taking that transformation to another level. Tech fortunes have gone from producing billionaires to giving us Elon Musk, the world’s first trillionaire. I’m beginning to see another reversal. This time, it’s personal. I’m an introvert. Growing up, I always envied extroverts. They could walk into a room, talk to complete strangers and somehow draw energy from being around people. I found the whole thing exhausting after the first twenty minutes. I used to be mad that I needed to down four beers just to summon the courage to approach a girl in a nightclub. Four beers! A very expensive confidence boost for a kid from a humble background. I always thought extroverts had been dealt the better hand in life. I even considered taking some sales job just to extrovertize myself. For much of corporate life, having a good idea wasn’t enough. You had to sell it, pitch it, network your way to the right people and command attention. Extroverts enjoyed a natural advantage in that world. I think AI is flipping the script. Introverts are often comfortable spending hours alone, exploring ideas, thinking things through and digging deep into subjects that interest them. With AI, those tendencies can become enormous advantages. You can sit in front of a screen all afternoon, pursue an intellectual rabbit hole, challenge assumptions, discover connections and follow your curiosity wherever it leads. You don’t need to assemble a team, hunt down experts or even drive to the library. You have a patient intellectual sparring partner who never complains that you’re overthinking things and never suggests continuing the conversation over drinks. And once you’re done, you can send your ideas out into the world without having to work a single room. Forty years ago, it took me four beers to approach one girl. Today, I can share my thoughts with a million people without leaving my desk. The economics of being an introvert have improved considerably.

What Confucius and Sun Tzu Could Teach Europe About Beijing I’m going to draw on two pieces of traditional Chinese wisdom to suggest how Europe should deal with the CCP in trade negotiations: Confucius’s distinction between 君子 (a person of principle) and 小人 (an unscrupulous opportunist), and Sun Tzu’s The Art of War. Both are perfectly understood by the people sitting across the negotiating table from the Europeans. desmondshum.substack.com/p/w…

The Calculator, the Idiots, and AI Today, I invited a couple of young alumni from my secondary school over for lunch. One is a Fulbright Scholar, and the other is training in three medical specialties at a hospital. I am hoping some of their gold dust will rub off on my son. The Fulbright Scholar, who is 25, works at a consulting firm employing 300 economists. I told him his firm could probably fire 250 of them. In the age of AI, what knowledge-based businesses really need are people capable of going from zero to one—coming up with original ideas and insights. Much of the work from one to ten—researching, testing, expanding and refining those ideas—can increasingly be done by AI. I bet most employees at his firm, as in many others, were hired to do precisely that one-to-ten work. After all, people with genuinely original insights are few and far between. More importantly, AI dramatically increases the productivity of those capable of zero-to-one thinking. This challenges the entire business model of knowledge-intensive firms. That’s exactly how I use AI. I start with my own idea, then go back and forth with AI to explore different angles, challenge assumptions, check facts and round out the argument. Occasionally, I run into people complain that AI is involved in my writing. That reminds me of the idiots who complained when calculators first appeared because people were using them instead of doing mental arithmetic. They completely missed the point. The intellectual contribution was in knowing which formula to use, not performing the calculations. The same goes for AI. The value lies in the originality of the idea and the judgment behind it, not the mechanics of producing the finished work. AI makes execution cheap and abundant. Original thinking becomes more valuable, not less.

Europe’s Two Biggest Powers Finally Wake Up to the China Problem This latest letter from Merz and Macron, together with the accompanying joint policy paper, marks an important breakthrough in how France and Germany now view China: as a systemic threat to Europe’s sovereignty and industrial base. legrandcontinent.eu/fr/wp-co… I have long argued that China represents a systemic threat to the free world. I only hope Europe can act fast enough to prevent lasting damage to its industrial base—and to the jobs and communities that depend on it. I used AI to condense the French-German letter and accompanying non-paper into the following highlights: “Europe faces a “massive industrial shock” — widening trade deficits, lost market share, job losses and erosion of industrial capacity. The problem is defined as systemic, not sector-specific — subsidies, dumping, excess capacity, industrial policy, non-tariff barriers and currency undervaluation reinforce one another. Economic dependence is now treated as a sovereignty issue — Europe risks losing industrial capacity, technological capability and freedom of political action. Strategic dependencies should be actively reduced in AI, semiconductors, quantum, critical minerals, batteries, clean energy, biotech and financial services. Existing EU trade-defence tools should be used faster and more aggressively — more investigations, more ex officio cases, sector-wide action and potentially higher duties. Create a new EU diversification instrument to identify dangerous supply-chain concentrations by country, company, nationality and global market share. Create a new systemic-response instrument allowing the EU to restrict access to the single market when a third country creates severe or persistent distortions. Ultimate sanction: immediate exclusion from the EU internal market if necessary. Make action harder for individual member states to block — Commission measures could take effect unless opposed by a qualified majority. Crack down on e-commerce and small-parcel imports through tougher customs enforcement, product-safety checks and possible market-access restrictions. Bring exchange rates into the trade debate — France and Germany argue that undervalued currencies contribute to global imbalances and that appreciation would help rebalance trade. Prepare for retaliation in advance — identify likely countermeasures and assess their impact on individual EU member states. Coordinate with like-minded partners to prevent goods or investment from circumventing EU restrictions through third countries. Rebuild Europe’s industrial base through strategic investment, regulatory simplification and stronger protection of R&D, intellectual property and sensitive data. Introduce a targeted “European preference” in strategic industries and technologies.” Bottom line These documents go far beyond the old playbook of investigating Chinese dumping and imposing tariffs. The emerging doctrine is much broader: reduce dependency, defend strategic industries, confront systemic distortions, rebuild Europe’s industrial capacity, and turn access to the single market into a source of geopolitical leverage. China accounted for roughly 32% of global manufacturing in 2024 and about 35% in 2025. I have argued for some time that this trajectory would hit a natural wall. We are beginning to see that wall now. Because everyone else needs an industrial base too. Everyone else needs technological capability. Everyone else needs manufacturing jobs. And everyone else has workers who need a paycheck. At some point, economics becomes politics, and politics becomes resistance. That point seems to be arriving in Europe.

The Next Choke Points Won’t Be Accidental We used to believe everything was a buyer’s market, hence the saying “the customer is always right.” China has flipped that logic on its head. But I don’t believe China built its dominance across rare earths, batteries, solar, critical minerals and manufacturing supply chains according to some grand blueprint for geopolitical coercion. Please don’t give me another one of those “Hundred-Year Marathon” theses. 😵‍💫 Much of it emerged from a combination of industrial policy, subsidies, local-government competition, environmental and labor arbitrage, scale and relentless competition. Rare earths, critical-mineral processing and other export controls have since demonstrated something much more consequential: control over relatively obscure links in a supply chain can create enormous pressure far downstream. Intent at the beginning matters much less once the strategic value has been discovered. Having discovered the power of these choke points, there is no reason to assume the next generation will be accidental. Beijing has learned that industrial dominance can produce something much more valuable than foreign exchange or employment: choke-point power. I think China will now deliberately set out to create new choke points. This is the genuinely new era. Beijing will identify technologies, materials, components, processing capabilities and production equipment where scale and sustained state support can drive foreign competitors out, discourage alternative capacity and eventually leave China controlling something the rest of the world cannot easily replace. That changes the Western policy problem completely. Today’s trade surplus tells us where China has won markets. The more important question is where China is trying to create tomorrow’s dependencies. The flip side is that reindustrialization in the West is no longer an option. It is a strategic necessity. And I don’t think the answer is simply to identify today’s choke points and build alternatives. Industrial systems evolve too quickly and unpredictably. What looks like an insignificant input today can become tomorrow’s critical dependency. By the time a choke point becomes obvious, the dependency may already have been built. That leads to a much harder conclusion. In strategically important industries, the West cannot simply de-risk individual supply chains as vulnerabilities reveal themselves. It needs the capacity to operate independently of China across the entire critical industrial ecosystem—from materials and processing to components, production equipment and manufacturing know-how. In other words, for strategic industries, the ultimate answer to dependency is separation. America has started to move in that direction. Europe seems to be beginning to understand the problem, but remains a long way from acting on it. China has discovered the strategic power of industrial dependency. The West now has to decide how much dependency it can afford to live with—and how much of its freedom to make its own political, economic and national-security choices it is willing to surrender in return.

Xi’s Health, China’s Systemic Risk @Lingling_Wei latest reporting on Xi Jinping’s health reminds me of something I was told in Beijing many years ago. Before Xi Jinping and Li Keqiang took over at the top in 2012–13, I was told there had been a Politburo-level discussion about the health of the two incoming leaders. Both apparently suffered from the so-called 三高—high blood pressure, high blood sugar and high cholesterol. The concern was straightforward: was it wise for China’s two most senior leaders to enter office with long-term health risks? One of them, Li Keqiang, has since died suddenly at the age of 68. Now Lingling Wei reports that Xi’s team built extraordinary amounts of rest into his Washington schedule—dropping a working lunch with Trump, leaving roughly five hours of downtime and even requesting a private room inside the West Wing where Xi could rest. During my years in Beijing, we used to laugh at the extraordinary lengths the system supposedly went to keep senior leaders’ health a state secret. We were told they travelled with their own toilets and that even their shit was packed up and taken away, lest their DNA or clues about their health would be leaked. Perhaps this is not entirely unusual for national leaders. But to us, the extreme secrecy felt like another manifestation of the familiar paranoia surrounding China’s top leadership. Yet the politics behind it are serious. In a system where so much power is monopolized by one man, the physical condition of that man is no longer merely a personal matter. It becomes a matter of consequence for the entire country. And Xi has made the problem far more dangerous. I have repeatedly argued that one of the lasting consequences of his ruthless purges will be what happens the day after Xi. He has destroyed rivals, broken political networks, overturned succession conventions and concentrated power around himself without naming a successor. More importantly, that ruthlessness has changed the rules of the power game. When that day comes, there may be very little room for compromise. For those competing to succeed him, losing could mean losing everything—not only your own position and freedom, but seeing your family, protégés and political associates investigated, prosecuted and punished alongside you. Defeat would not be personal. It could mean the destruction of your entire network. That changes the nature of succession from political competition into an all-or-nothing struggle for survival. Xi’s health, therefore, isn’t merely a medical story. It is a succession story—and potentially a story about the stability of the entire political system.

Why Chinese and Western Analysts See China Differently On a regular basis, I probably review ten Chinese-language podcasts or pieces of writing on China for every two from Hong Kong and one in English. Over time, I have noticed a consistent difference among them. Hong Kong analysis often sits somewhere between the two, but broadly speaking there are two largely separate worlds of China watching: the Chinese-language world and the English-language world. desmondshum.substack.com/p/w…

Xi Wants 100,000 American Students. Send Him 100,000 American Ambassadors @BaldingsWorld @RushDoshi @PLMattis Here’s my answer to Xi’s invitation for 100,000 American students to China: take it up as a challenge to learn about China—and as an opportunity to spread the gospel of the American system. desmondshum.substack.com/p/x…

The IMF Knows What’s Wrong With China. So Does Beijing. The IMF has just published a 240-page book, “Toward a New Economic Growth Model for China”. elibrary.imf.org/downloadpdf… Its conclusion is straightforward: China’s existing growth model has reached its limits and needs to change. Investment is producing diminishing returns, property can no longer drive growth, domestic demand is too weak, productivity is slowing, and China cannot indefinitely substitute exports for domestic demand. The prescription is equally familiar: shift resources toward households, consumption and services; strengthen the social safety net; reduce industrial-policy distortions; restructure local-government finances; and give markets a larger role. This is increasingly the mainstream view of China’s economy. I wrote about this new consensus a week ago. The IMF book gives useful data and nuances, but little in its basic diagnosis is new. More importantly, probably very little of it is new to Beijing either. Thirty or forty years ago, advice from institutions such as the IMF and World Bank carried enormous weight in China. China had limited experience with modern macroeconomics, financial markets and market institutions. That changed after Russia’s painful transition and, especially, the Asian financial crisis, when IMF programmes became deeply controversial across Asia. China became far more skeptical of prescriptions from international institutions. Meanwhile, China developed its own domestic economics profession and a comprehensive economic bureaucracy. Beijing does not need the IMF to tell it that consumption is too low, property is exhausted, local governments are overleveraged, or that continuously pouring capital into production while domestic demand remains weak creates distortions. The issue is not about diagnosis. It is choice. Many of the IMF’s prescriptions require redistributing not just resources but losses and power. Raising consumption means shifting resources toward households. Cleaning up local-government debt means deciding who absorbs accumulated losses. Giving markets a larger role means reducing administrative allocation of capital. Strengthening private enterprise means accepting a larger economic sphere less directly controlled by the Party-state. This was also the most interesting part of the panel discussion. Most participants stayed within familiar economic diagnosis and prescription. @RhodiumDan Rosen of Rhodium Group went further. youtu.be/TPwSJ8MV9JM?is=za2H… He pointed out the important question isn’t what reforms does China need? It is why did Beijing stop reforms it already knew were necessary? While the IMF continues to discuss Chinese growth around the official 4.5–5% range, Rosen put underlying annualized growth at between -1% and +1%. Once everyone agrees on the diagnosis, repeating it has declining value. The questions worth asking now should be: What will Beijing actually do when the economically efficient solution conflicts with its political priorities? What happens if China continues pushing capital into manufacturing, technology and infrastructure rather than transferring income and resources to households? Who ultimately absorbs the losses embedded in property, local-government finance and the banking system? What happens when additional Chinese production collides with the political limits of foreign markets? And how should the rest of the world respond if Beijing understands the need for rebalancing perfectly well—and nevertheless chooses a different path? That is where the China debate needs to go next.

A Red Carpet Down the Wrong Road If I didn’t know better, I’d think Trump was setting a brilliant trap for Xi Jinping: shower him with so much praise that he feels encouraged to keep wrecking China’s economy. After Trump’s retreat from the tariff war, this extravagant reception could reinforce Xi’s conviction that he has been right all along. Why else would Trump back down and now show me such respect? Xi is steering China towards more production and exports, weaker household consumption, and deeper imbalances. Advanced manufacturing generates impressive output but fewer jobs per unit of production, while falling property prices and weak incomes keep consumption depressed. Beijing’s answer? Build more infrastructure. Its “six networks”—water, power, computing, communications, underground utilities and logistics—are being accelerated to keep its economy on track. Reported estimates put investment in these and related areas are budgeted at roughly 26 trillion yuan (US$3.9 trillion) during 2026–2030, including around 7 trillion yuan (US$1.04 trillion) this year alone. As if China didn’t already have enough underused infrastructure. 🥳 That can get banks lending and GDP moving again. But it perpetuates the same investment dependence that China needs to escape. More money flows into construction and productive capacity while household purchasing power weakens. The result is a country increasingly capable of making things its own people cannot afford to buy—and increasingly dependent on foreigners to absorb the surplus. Trump’s applause could help Xi mistake diplomatic recognition for economic vindication. Trump doesn’t need to build the trap. Xi is building it himself. He just needs a little more encouragement from the White House.

我所认识的令谷：一场改变中国政局的“交通意外” The Ling Gu I Knew: A “Traffic Accident” That Became a Turning Point in Chinese Politics 时至今日，我看网上还有不少朋友讨论令计划儿子的那场“交通意外”。在我看来，那场意外及其后续发展，对当时中国政局产生了巨大影响，也对习近平后来全面掌权起了决定性的作用。它改变了中国政治的走势，影响延续至今。说这件事改变了我们十几亿人的命运，也不为过。 思前想后，我还是想和大家分享一下我所认识的令谷、我知道的事件始末，以及我对其政治影响的一些看法。这些个人经历和见闻，也许能为未来历史学家研究这段中国历史提供一点补充。 desmondshum.substack.com/p/3… To this day, I see people online discussing the “traffic accident” involving Ling Jihua’s son. In my view, that accident and the events that followed had an enormous impact on Chinese politics and played a decisive role in helping Xi Jinping gain complete control. It changed the course of Chinese politics, and its consequences are still with us. It is no exaggeration to say that it changed the fate of more than a billion of us. After much reflection, I have decided to share my memories of Ling Gu, what I know of the events and their aftermath, and my views on their political significance. These personal experiences and recollections may offer future historians some additional material for understanding this period of Chinese history.

Inside China’s Local Government: An Official’s Account I want to share the following because it gives a clear sense of what is happening on the ground. As Xi takes China down a new path, it is important to understand how that shift is playing out on the front line. desmondshum.substack.com/p/i…